2017 Q3 Industrial Austin Report

Austin’s industrial market took another hit to it’s net absorption in Q3 2017, posting 261,906 SF of negative net absorption. There were a few sizeable tenants that moved out of large blocks of space in the third quarter of 2017, including Pearson Inc moving out of 135,442 SF at Tech Ridge Five (905 Howard Lane) in the Northeast Submarket.

Looking forward, there are at least 12 small blocks of space being filled by tenants, in Q4 2017. There is also over half a million square feet of new product set to deliver in Q4 2017, with nothing set to deliver in Q1 of 2018.

Austin’s citywide average rental rates decreased over the quarter from $11.09 per SF NNN to $10.66 per SF NNN. The average warehouse/distribution rental rate increased slightly to $8.41 per SF NNN from $8.27 per SF, and the average citywide flex/R&D rental rates decreased to $13.09 per SF NNN from $14.09 average rate in Q2 2017.

Austin’s industrial market saw four buildings deliver in the third quarter, totaling 363,930 SF. The largest building completed in Q3 2017 was located at 6320 Stassney Lane (Building 2), which is 142,800 SF and vacant. Building 1 at 6320 Stassney Lane, is a 54,850 SF building, which also delivered and was 50% leased at the time.

In Q3 2017, 653,846 square feet of industrial supply was under construction, including one new project totaling 83,475 square feet. That new project is The Collective at South Congress, a mixed use project, located at 7601 South Congress Avenue, set to deliver in December of 2017.

Vacancy & Availability

Austin’s citywide average vacancy rate increased from 9.0% to 9.9% over the quarter. The largest quarterly spike in vacancy occurred in the Southwest submarket, where it increased from 6.7% in Q2 2017 to 11.2% in Q3 2017. Other submarkets with an increase in vacancy include the Central, East, Far Northeast, Far Northwest, Hays County, North, Northeast, Northwest and South submarkets.

The largest decrease in vacancy over the quarter occurred in the Round Rock submarket where vacancy fell from 6.5% to 4.6%. The Southeast submarket was the only other submarket with a decreasse in vacancy, where the vacancy rate decreased from 8.8% in Q2 2017 to 8.7% in Q3 2017.

Rental Rate & Vacancy Percentage

Absorption & Demand

Austin’s industrial market saw a fourth consecutive quarter of negative net absorption, which is the first time Austin witnessed three consectutive quarters of negative net absorption since late 2008 and early 2009. Year to date, absorption for 2017 is currently at 1,150,630 SF negative. Though it has been a tough year so far, our research indicates at least 12 tenants that will be moving into 252,940 SF of industrial space in the Austin market in Q4 2017.

According to CoStar, one of the tenants moving out of a large block of space is Pearson Inc. The tenant is moving out of their 135,442 SF space at Tech Ridge Five (905 Howard Lane) in the Northeast Submarket due to downsizing in the company.

The East submarket posted the largest amount of negative net absorption with 144,280 square feet. The Northeast submarket had the second largest amount with 54,655 square feet of negative net absorption.

The submarkets that posted positive net absorption were Round Rock and Southeast. The Round Rock submarket had the highest positive absorption with 51,079 square feet of positive net absorption.

Rental Rates

According to CoStar, our data service provider, the citywide average rental rate decreased over the quarter to an average rate of $10.66 per SF NNN from $11.09 per SF NNN in Q2 2017. Annually, citywide average rental rate has decreased 0.8%, since Q3 2016.

The highest average rental rate at the end of Q3 was in the South submarket at $13.68 per SF NNN. The submarket with the lowest average rental rate in the third quarter was the Hays County submarket at $7.73 per SF.

Leasing Activity

Austin’s industrial leasing activity was 437,313 square feet in Q3 2017. The bulk of the leases signed in the third quarter were in the North submarket, totaling 303,520 square feet. The two largest new leases signed were 93,425 and 49,500 square feet, at 11000 North Interstate 35 by FEMA.